Here's a ritual every PT owner knows. You look up the fee schedule, you know the allowed amount, the remittance arrives, and the number is lower. Not dramatically lower. Lower in a way nobody at the front desk can explain, so it gets posted as-is and life moves on.
Most of the time nothing is wrong. Medicare's payment rules stack several reductions on the way from "allowed amount" to "what hits your bank," and each one is documented, predictable, and invisible if nobody models it. The problem is what that invisibility costs: if every check looks a little off, a check that is genuinely short looks exactly like all the others. This article walks the stack, then shows what reconciliation looks like when the stack is modeled instead of shrugged at.
The $100 walk-through
Say the fee-schedule allowed amount for a code is an even $100 and the patient's deductible is met.
- The 80/20 split. Medicare Part B pays 80% of allowed: $80. The remaining $20 is coinsurance, owed by the patient or their supplement plan. Your $100 was never coming from Medicare.
- Sequestration. Medicare then reduces its own share by 2%: $80 minus $1.60 leaves $78.40. On the remittance this shows as code CO-253, "reduction in federal payment." It applies to the 80%, not to the patient's 20%.
- MPPR, if it's not the only procedure that day. Under the multiple procedure payment reduction, the highest-value procedure pays in full, and the practice-expense portion of each additional same-day therapy procedure is cut by half. Since PT visits routinely bill three or four timed codes, most lines on most claims carry an MPPR haircut, each by a different dollar amount depending on the code mix.
- Assistant modifiers. Services furnished in substantial part by a PTA carry the CQ modifier and pay at 85% of the rate. One staffing decision changes the expected amount on every affected line.
- Deductible season. Each January, early claims apply to the annual Part B deductible. Medicare pays $0 on those lines and moves the full allowed amount to patient responsibility. A practice that posts January remittances without modeling this "loses" weeks of revenue on paper and then finds it again in February.
None of these are errors. All of them change the expected number. And they compound: a second-position timed code, furnished by a PTA, during deductible season, has an expected Medicare payment of zero and an expected patient balance that took four rules to compute.
Then the money arrives strangely too
- One deposit, many patients. Medicare pays in batches through your MAC. A single EFT settles dozens of claims across dates of service, which is why deposit-to-claim matching fails without the 835 remittance in the middle.
- The 20% arrives later, from someone else. For patients with Medigap, Medicare forwards the claim through crossover and the supplement pays the coinsurance weeks later as its own small deposit. A claim isn't underpaid because the 20% hasn't shown up yet; it's underpaid if the crossover never comes. Distinguishing those two requires tracking each claim across two payers and two timelines.
- Recoupments net old history out of new checks. When Medicare decides it overpaid you last quarter, it takes the money back as a provider-level adjustment inside a current payment. Today's deposit is short by last quarter's claim, and unless PLBs are tracked explicitly, both ends of that transaction stay mysterious.
The posting trap: if you post whatever arrives, you will never see an underpayment, because "what arrived" is the only number you have. If you flag every variance from the fee schedule, you will drown, because nearly every Medicare line varies by design. The way out is an expected-pay model: compute what each line should pay after the rules, and alert only on the difference between expected and actual. Medicare being Medicare gets auto-cleared; real problems make a short list.
What good Medicare reconciliation looks like
- An expected amount per claim line. Fee schedule, MPPR position, assistant modifier, deductible status, 80/20 split, sequestration: applied in order, per line, automatically. This is arithmetic, which is why it should be software's job.
- Three records tied together. Expected versus the 835 versus the bank deposit, at the claim-line level, the same three-way match that governs trust accounts and escrow. Posted-but-not-deposited and deposited-but-not-posted both surface on their own.
- Crossover tracking. Every claim with a supplement expects a second payment. The system holds that expectation open and flags the ones that age out, instead of treating the missing 20% as background noise.
- An exception list a human can finish before lunch. Real underpayments, missed crossovers, recoupments tied back to their original claims, and denials worth appealing, ranked by dollars. That list is the deliverable. Everything else cleared itself.
Honesty about the economics: not every variance is worth chasing. A $3.40 mystery on one line costs more to investigate than to write off. The point of modeling the rules isn't to chase pennies; it's that systematic problems finally become visible: an assistant modifier applied where it shouldn't be, a payer recouping the same claim twice, a crossover feed that quietly stopped. Those are worth real money, and they hide inside the noise a naive process can't clear.
We run exactly this for a multi-location physical therapy practice where Medicare is by far the largest payer: remittances parsed to the claim line, expected-pay rules applied, deposits matched across the EMR, the clearinghouse, and the bank. The engine took the monthly bank match rate from roughly 80% to 98% by dollars (the write-up is on the case studies page). The physical therapy billing services page describes the pipeline, priced as a flat monthly fee rather than a percentage of your collections.
Frequently Asked Questions
Why did Medicare pay 78.4% of the allowed amount instead of 80%?
Sequestration. Medicare pays 80% of the allowed amount after the Part B deductible, then reduces its own share by 2%. On a $100 allowed amount that is $80 minus $1.60, so $78.40 lands in the remittance, coded CO-253. The patient or their supplement still owes the full $20 coinsurance; sequestration only touches Medicare's side.
What is claim adjustment code CO-253?
It is the code Medicare uses on the remittance for the sequestration reduction, described as a reduction in federal payment. It is not a denial and not a posting error; it is a flat 2% taken from Medicare's 80% share. An expected-pay model should treat it as normal, so staff attention goes to variances that actually mean something.
Why don't Medigap payments arrive with Medicare's payment?
Medicare adjudicates first, pays its share, and forwards the claim to the patient's supplement plan through the crossover process. The supplement pays the coinsurance on its own schedule, usually weeks later, as a separate small deposit with its own remittance. A claim is not short-paid just because the 20% has not arrived yet, but nobody knows that unless something is tracking each claim across both payments.
How should a PT practice reconcile Medicare payments?
Build the expected amount per claim line (fee schedule, minus MPPR on second and later procedures, times any assistant-modifier reduction, times the 80% split, minus 2% sequestration), then match three records: expected versus the 835 remittance versus the bank deposit. Differences that match the rules get named and auto-cleared; what remains is the short list of real underpayments, missing crossovers, and recoupments worth staff time.